Microsemi or Skyworks: Who’s the best suitor for PMC-Sierra?

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Microsemi Corp. (Aliso Viejo, California) trumped Skyworks’ (Woburn, Massachusetts) $2 billion bid for PMC-Sierra this week with their offer of $11.50 per share, or about $2.2 billion. Sunnyvale, California based PMC-Sierra provides semiconductor and software solutions used in ‘big data’ networks, the networks built by customers such as Google, IBM, HP, and others to meet the growing mobile data and internet demands. So why do Skyworks and Microsemi both want PMC?

Skyworks

Skyworks is a manufacturer of semiconductors for use in radio frequency (RF) and mobile communications. To use their words to describe the potential deal, “This acquisition solidifies Skyworks' position as a highly diversified analog, RF and mixed-signal semiconductor leader by significantly expanding its product portfolio, customer base and end market applications.” The proposed benefit for PMC-Sierra is that it will allow them the opportunity to realize their vision of “transforming the broader communications landscape through unparalleled product breadth and operational scale.”

Mircosemi

Microsemi’s product line includes analog devices, mixed-signal and RF integrated circuits, customizable systems-on-chip (cSoC), and FPGAs targeting a variety of applications in the aerospace, communications, defense and security, and industrial markets. They also view the acquisition of PMC-Sierra as mutually beneficial. It would provide Microsemi with a leading position in high-performance and scalable storage solutions targeted at data center and cloud applications, PMC shareholders would realize a “substantial premium and immediate cash value,” and it would vault the combined company into the top 10 list of analog/mixed-signal companies.

What benefit might there be from an IP Perspective?

To answer the question of what benefit there might be from an IP perspective, we compared the patent portfolios of all three companies. While both Skyworks and Microsemi have good patent coverage globally with 40%-45% of their portfolios comprised of foreign filings, PMC-Sierra’s consists almost exclusively of US grants and applications. Considering only active US publications, all three portfolios are comparable in size: 721 for PMC, 921 for Skyworks, and 1,041 for Microsemi.

Based simply on the number of patent applications, Skyworks appears to be the most innovative company. Almost 20% of their US publication portfolio consists of patent applications or continuations, contrasted with Microsemi at 6% and PMC-Sierra at <1%.

If we look at the US portfolios by high-level technology type, we see that PMC-Sierra’s patents are predominantly systems-related, while both Microsemi and Skyworks are weighted more towards circuit and process. While Microsemi now relies on external foundries for production of their ICs, Skyworks still runs wafer fabrication facilities to produce their GaAs, SiGe, pHEMT, and HBT products.

Using Chipworks’ Patent Analytics we can quickly compare the portfolios of several companies to get a sense of where each company’s IP strengths lie and, in the case of a merger or acquisition such as this, how those strengths may potentially complement each other.

The patent landscapes below were generated using KMX, a patent analytics and visualization tool. Each dot is a US patent grant or application, and similar patents are grouped based on text algorithms. Topographical peaks denote key technology concepts, with the top three most frequently appearing words for each peak shown. These landscapes provide a graphical representation of the combined patent portfolios for each of the proposed entities; PMC/Skyworks and PMC/Microsemi.

What we can immediately observe from the PMC/Skyworks landscape above is that there is little overlap between portfolios. This is indicative that the combination is complimentary and that Skyworks is looking to obtain technology that they currently do not possess.

In contrast to this is the combined PMC/Microsemi portfolio landscape above, which shows significantly more overlap. This suggests that Microsemi is looking to complement and strengthen its technology offering with this acquisition. Based on this high-level analysis, the implication is that Skyworks needs this acquisition more to compete in the big data market than Microsemi does.

We’re interested to see who will ultimately gain control of PMC: the innovative company with a strong need to build their data networking IP, or the company well versed in acquiring companies and offering potentially higher value to PMC shareholders.

Get an overview of the Chipworks Patent Analytics solution: Download our free e-Book: See why patents are a big data problem and how detailed usage scenarios can address a range of IP challenges.

Update

PMC-Sierra issued a press release November 1st maintaining that the acquisition offer by Skyworks is superior to the unsolicited bid made by Microsemi Corp on October 19th. While Skyworks’ increased offer to acquire all outstanding shares of PMC common stock for $11.60 per share in an all-cash transaction is still below Microsemi’s cash and stock proposal valued at $11.82 per share, PMC’s board of directors cited market volatility concerns as the main reason to reject Microsemi’s highly-leveraged offer. The termination fee was also increased to $88.5 million, so it appears that Skyworks may very well win this deal and gain the technological advantage to compete in the big data market.

Second Update

Microsemi announced on November 24th that it had yet again increased its bid for PMC-Sierra; up to $2.5 billion. This was enough to persuade PMC’s board that the offer was now superior to the previous one proposed by Skyworks. Skyworks appears to have conceded stating that they maintain a highly disciplined approach to acquisitions and that the increased valuation for PMC no longer meets their financial criteria.